Friday, October 30, 2009

Happy Halloween! Here's Some Spooky Quotes From Smart Investors:

From Bloomberg News today:

Billionaire investor Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash and billionaire investor George Soros said “bloodletting” may be coming for leveraged buyouts and commercial real estate. Soros also said “The American consumer will no longer be able to serve as the motor for the world economy.”   Here's the article link:  Ross and Soros on real estate

What I would suggest is that anyone thinking about buying this "dip" in real estate might want to wait for a bit - like several years. And anyone riding REIT stocks because their Raymond James or Wells Fargo advisor said, "hey man, they're good value and pay awesome dividends," might consider taking the gift of this rally since March and sell.

With apartment rental vacancies hitting a new record high in October, the housing market ready to turn back down after the summer's taxpayer financed homebuying orgy, foreclosure inventory ready to flood the market and persistently rising delinquency/default rates permeating the massive prime-rated mortgage sector, Dave In Denver says, "get ready for the next big cliff dive in the housing market."


Thursday, October 29, 2009

If You Are Looking To Buy Gold, I Wouldn't Wait Past Halloween:

From legendary commodities trader Paul Tudor Jones, who disclosed that his firm's precious metals exposure has been increasing and is his largest commodities exposure: 
"I have never been a gold bug. It is just an asset that, like everything else in life, has its time and place. And now is that time."
As you can see from this chart, sourced from tonight's Midas report at, November is one of the best months for gold over the past 37 years, or since Nixon closed the gold window:

Watching Geithner In Front Of The House Financial Services Committee

He just made the statement that the U.S. has recently decreased its borrowing from foreigners.  I'd like to see his back-up material to justify that statment, because it is either an outright lie or a negligent omission of fact.

Geithner attempts to mask his extreme stupidity with inarticulate arrogance.

Wednesday, October 28, 2009

Another Country Abandons The Dollar

Sourced from tonight's Midas report at

Turkey to use national currencies in trade with Iran, China

.ANKARA, October 28 (RIA Novosti) - Turkey is switching to national currencies in trade with Iran and China, ending dependence on the U.S. dollar and the euro for about 20% of its commodity turnover, local media reported on Wednesday.

Turkey has already switched to settlements in national currencies with Russia amid weakening confidence in the greenback as the world's major reserve currency. The move was initiated by Turkish President Abdullah Gul during his visit to Moscow in February…Here's the news link: News Link

Regardless how much denial is issued by the various parties - and the typical "pooh-pooh" or cover-up in the U.S. media - the fact remains that the world is withdrawing its use of the U.S. dollar as a "reserve" trading currency.  By the time most people in the U.S. understand this, many of them will not be able to afford more than ounce or two of gold because the price in U.S. dollars will be much higher than it is now.

New Home Sales Much Weaker Than Expected...and

Mortgage applications for purchases and refinancings were much lower than expected - what was unexpected was that the Mortgage Bankers Association had no comment on this.  I can hear Bernanke cranking up his printing press and getting his infamously nefarious money-dropping helicopters (extreme posthumous apologies to Milton Friedman) ready to take off over America again.

Now that Obama has satiated Wall Street/AIG's thirst for huge taxpayer-financed bonuses, I'm assuming we can expect Stimulus Part Deux, which will again be used by State Governors to take care of their special interest pet projects and sprinkle money dust on Obama's Government-entitled/dependent support base.

Meanwhile, the Government housing subsidy program has stimulated a surge in mortgage fraud (hat tip to
The Property Valuation Fraud Risk Index is up 25% from the previous quarter and up 46% from the year-ago quarter, indicating a shift toward fraudulent schemes involving short sales, real estate-owned inventories and refinancings by borrowers with equity impaired by falling property values.  (here's the link:  MORTGAGE FRAUD SPIKES)
I would appear that Obama's taxpayer-funded homebuyer credit is riddled with fraud in every aspect of the home sales process, from real estate broker puffery to appraisals, to mortgage fraud - and even outright qualification fraud.

Tuesday, October 27, 2009

GMAC To Bend The Taxpayer Over For Yet More Money

"GMAC, the troubled consumer finance company, is seeking billions of dollars in additional federal aid, a move that would be its third taxpayer bailout and could give the government a majority stake in the company, according to people briefed on the situation."

Looks like Obama is going give GMAC a third helping of up to $6 billion of taxpayer money.  Since Geithner doesn't pay taxes, he probably doesn't care.  Here's the article from the NY Times:  LINK

At a time when close to 20% of this country is either unemployed or "underemployed," people in several cities are now living in tent cities, the Government is borrowing trillions to bail out the big banks and finance big bank CEO bonuses, I really don't see the need to spend billions more in order to save a few union jobs by keeping GMAC's subprime garbage portfolio solvent.  Let Cerberus, the big hedge fund who purchased GMAC from GM and was let off the hook by Obama and Geithner, pony up private money if they so choose.

Perhaps Barak will celebrate this deal by ordering more of that pizza he loves so much from St. Louis, to be flown in to the closing party at the White House.  I don't know about anyone else, but this isn't the visuals I had in mind when Obama was pimping us with grandiose campaign speeches.

A Modest Proposal For President Obama

In light of the new information about Tim Geithner's role in the fraudulent bailout of AIG and the big banks, who most likely would have all gone bankrupt without Geithner's generosity, I would request that Obama undertake the following actions:

1)  Ask for Geithner's resignation.  If Geithner were to ignore this graceful request, then fire him
2)  Seize all records, computer files and email records at the NY Fed - do the same at the U.S. Fed
3)  Seize all records connected with the AIG bailout at the U.S. Department of Treasury
4)  Seize all phone records, public and private of Geithner, Paulson, Bernanke and all the big
     bank CEO's
5)  Freeze all business activity at any bank connected with the bailout of AIG and seize all records
6)  Order the Justice Department PLUS an indepedent investigator to investigate everything and
     everyone connected to the Taxpayer bailoout of AIG, including Henry Paulson and all members of
     Bush's Administration connected with the bailout, including Bush.

I think we've given Obama enough benefit of doubt.  It's time that our elected public officials are held accountable, including Obama.  Up to this point, nearly every single major promise that Obama made in connection with his campaign platform has been one big lie.  And worse, it appears that Obama is nothing more than a simple lapdog for Goldman Sachs, JP Morgan and the Federal Reserve.

Tim Geithner's Job Is To Rip-Off The U.S. Taxpayer

Tim Geithner, when he was Chariman of the NY Fed (this is before it was revealed that he is a tax-dodger), made the decision to pay the banks 100 cents on the dollar for their AIG credit default swaps, using U.S. taxpayer money.  These are securities that were worth, at most at the time, 40 cents on the dollar and worth even less now.  THE ARTICLE LINKED BELOW FROM BLOOMBERG NEWS DISCLOSES HOW TIM GEITHNER COMPLETELY RIPPED-OFF THE U.S. TAXPAYER AND GAVE THAT MONEY TO THE BANKS WHO EMPLOYED HIM - GOLDMAN SACHS, JP MORGAN, AMONG OTHERS - AT THE NY FED.  Here's the link:  Geithner Works For The Big Banks

Please keep in mind that the Federal Reserve is a private entity, not controlled by the Government, and is owned by the member banks.  Thus, when Geithner was head of the NY Fed, he was employed by the big banks that own the Fed, not the taxpayers, and yet he was spending 10's of billions of U.S. tax money to bail out his employers.  This is a subtlety of which a lot of people are unaware, but it is fact.

Here are the highlights:

- The CFO of the derivatives division at AIG was hoping to persuade the counter-party banks like
  Goldman to take 40 cents on the dollar - GEITHNER ARRANGED TO GIVE THE BANKS FULL
  VALUE AND THE MONEY USED WAS TAXPAYER MONEY.  Essentially what this disclosure
   reveals is that AIG knew their paper was worth AT MOST 40 cents, and probably A LOT less.
  Geithner game them 100 cents.

- The Government's financial commitment to AIG - i.e. Taxpayer financial commitment - added up to
   $182.3 billion.

- "The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at 
  least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the
  agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value
  was $62 billion and for which AIG paid the market price of $29.6 billion."

From documents obtained by Bloomberg News, it has become clear that Tim Geithner knowingly transferred 10's of billions in Taxpayer money to completely insulate the banks who were exposed to AIG derivatives counterparty risk.  Stunningly, this describes what happened:
Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them [Goldman, et. al.] par, or 100 cents on the dollar. The content of its deliberations has never been made public.
Several points are made clear from this new released today.  1)  Tim Geithner, while head of the NY Fed, was taking instructions from the big banks;  2)  Geithner structured the bailout of AIG in a way which prevented these big banks from taking any losses on their exposure to AIG;  3)  Taxpayer money was used to pay off the banks and pay huge bonuses for 2008, both to the banks and to AIG;  4)  Tim Geithner knowingly oversaw all of this, despite his statements of denial.

It is clear that Tim Geithner's role as Secretary of the United States Treasury is to make sure the big money center banks - the banks who were the biggest contributors to Obama's election campaign - do not suffer any losses as a result of their role in pumping the financial system full of trillions of deadly credit default derivatives.  Geithner was put in place as Treasury Secretary - despite that fact that he had been caught red-handed more than once cheating on his personal tax returns - in order to perpetuate the big bank bailout set in motion by former Secretary Henry Paulson.

The trail of evidence is indisputable.  This is why Ben Bernanke and the Federal Reserve is spending millions in a massive lobbying effort to derail any attempts by Congress to implement an independent audit of the Fed. It also explains why Obama failed withdraw his nomination of Geithner to be Treasury Secretary after it was revealed that Geithner was a multiple-year tax dodger.  These are the people running our country and allocating your tax money.

Monday, October 26, 2009

Is Christine Romer Mentally Handicapped?

This is a serious question.  The following statement from her is, unequivocally, the dumbest comment I have ever seen issued by a public employee in a position which gives them influence on public policy:

"White House: health reform key to tackling deficit"  Article Link

Talk about an oxymoronic concept:  Government program and fiscal austerity.

Sunday, October 25, 2009

The U.S. As A Failed State

This commentary from Paul Craig Roberts, who's professional and educational accomplishments speak volumns and who is critical of both political parties, just published a must-read commentary on the state of systemic decay in this country:
Costs are out of control, and priorities are skewed in the interests of rich organized interest groups at the expense of the vast majority of citizens...The one percent that comprise the superrich are laughing as they say, "let them eat cake."
Here is the link:  Let Them Eat Cake

Here's an observation I shared with some people this weekend, in the context of a tragic story that made me sad for our country and incredulous that we stand by idly while the politically connected Wall Street elite completely loot our system with Obama's blessing:

The system is clearly 100% corrupted and broken. Obama is making things even worse. I heard a heartbreaking story last night about a struggling mother living in her broken down truck with her child, yet still keeping her child in middle school and making sure he had clean clothes for his school band performances.  She made money by salvaging scrap metal from residential and commercial dumpsters and selling the metal to scrap dealers.  She was trying to do the right things to survive.  She may have hit a wall this week because the system would not help her or her child.  Her loyal, well-trained dogs were towed away with her truck and she may lose custody of her child.  Why are the people running our biggest banks raking in 10's of millions of dollars when they are the ones forcing the weak and the poor into oblivion? Thanks for that Change, Barak.  While you fly in pizza from St. Louis for your lavish parties to entertain your corrupt, wealthy supporters, you are defecating on the people who voted you into power.

Friday, October 23, 2009

Is Russia Really Selling Gold?

Doubtful. However there is a widely disseminated news report out of Moscow on Reuters that Russia plans on selling 46 tons of gold this year. While a couple people I know who are familiar with the way things work in Russia question the validity of this story, here is my take on it:

The Russian entity supposedly selling the gold is Gokhran, which is the State Precious Metals and Gem Repository and takes orders from the Finance Ministry.  The Russian Central Bank, which operates independently from Gokhran and takes orders from the Kremlin, has purchased around 67 tons of gold YTD, including 400,000 ounces, or roughly 12 tons last month.

But, who cares? IF  the Gokhran gold really is for sale, they have a neighbor directly to the south (China) who is overstuffed with dollars and who I'm sure will be interested in buying the entire lot. The question is, IF the suspected global shortage of physical bullion is bona fide, would Russia demand a large premium to spot for this chunk of gold? Perhaps Russia wrapped this offer in Christmas lights in order to create a bidding frenzy.  If they thought the sale of 45 tons of gold would hurt the price of gold, they would have kept the sale quiet.  If the sale happens, it will now be bid-in-comp and will likely be executed substantially above spot.

If the view that there is truly a physical shortage of gold and silver that has developed globally is bona fide, the sale of this chunk of Russian gold at premium to spot will confirm that view.   A long-time  London contact of GATA's Bill Murphy told Bill today that "physical gold is EXTREMELY hard to buy in SIZE. His sources are firms that have been in the gold business for 50 years. He believes it is going to get more difficult to secure supply in the weeks and months ahead."  This particular source of information, over the seven years I've been reading Murphy's nightly  Midas report, has uncannily accurate insight and intel on the gold and silver market.

Existing Home Sales: "Nothing Is But What Is Not" (to quote Shakespeare)

The National Association of Realtors (NAR)  released a bubbly report today which showed that existing home sales increased in September by 9.4% over August and 9.2% over last September.  Please note that this is based on the NAR's "seasonally adjusted annualized" estimates.  I have no idea how that number is calculated, but I'm positive that "seaonal adjustments" and "annualization" of any data series leaves plenty of room for editorial license on the part of the person calculating them.

A closer look at the data, however, shows that not seasonally adjusted monthly sales for September shows a MUCH DIFFERENT STORY.   Sales actually dropped 5.2% vs. August and were up 7.8% vs. last year. The median price dropped 8.5 vs. September 2008.  Here is the NAR's data link:  Existing home sales

Hmmm.  What do we do with the discrepency?  If you are the NAR and the and NAHB (Nat'l Assoc of Homebuilders) you start lobbying extra hard in front of Congress (note: this means giving huge campaign contributions to key Congressmen) using the hocus pocus seasonally adjusted mickey mouse number, claiming that the home buyer tax credit program is working.

I would suggest that the unadjusted monthly number, not the seasonally adjusted annualized number, is more likely to be the accurate snapshot of existing home sales.  It would also reflect the seasonal reality that homes sales typically drop after Labor Day.  It's clear to me that NAR chief economist Lawrence Yun, and his band of merry fraudsters, took their abacus and calculators and crafted a number which would "demonstrate" - to well-paid-off members of Congress who are looking at extending the home buyer taxpayer payer program - that the program needs to be extended.

Looking at the unadjusted, actual month-to-month number, it's clear that the tax credit has stimulated some home sales.  Furthermore, there was a rush to go into contract and secure financing before the exiting legislation expires at the end of November.  I would also argue that, without completely throwing out any measure of credit worthiness and allowing anyone capable of fogging a mirror to get a mortgage and use the tax credit (all the fraud uncovered notwithstanding) that a large majority of those who were planning on buying a first home have probably done so this summer.

To me, the numbers released today by the NAR unequivocally reflect the massive fraud, corruption and deceit going on at all levels of our economic and political system.  To book-end with another quote from "Macbeth," I would say with regard to Lawrence Yun, and anyone else promoting today's existing homes sales numbers as anything less than fantasy: 
"Out, out, brief candle! Life's but a walking shadow, a poor player that struts and frets his hour upon the stage and then is heard no more: it is a tale told by an idiot, full of sound and fury, signifying nothing."

Thursday, October 22, 2009

1st-Time Homebuyer Tax Credit Loaded With Fraudulent Schemes

Shouldn't surprise anyone - seems like about 80% of the housing and mortgage market is riddled with interminable fraud.  This is reason enough ALONE to not extend the 1st-time homebuyer tax credit.  From the Inspector General for Tax Administration:
He told a House Ways and Means oversight subcommittee that they also found 580 taxpayers under the age of 18 who claimed $4 million in first-time home buyer credit. One was 4 years old..."Some of our findings, while preliminary, are somewhat disturbing," George said. Among the most striking instances of fraud include 4-year-olds, non-U.S. citizens and IRS employees inappropriately claiming the benefit, he said. (Here's the link:  More Systemic Fraud)
I can think of several other reasons not to extend the tax credit - about $8,000 of them.  I'm not sure why my taxes should be used to put someone into a house who has a high probability of defaulting on that house within the first year.  The only real beneficiaries are the real estate and mortgage brokers.

Don't Believe The Hype About The Housing Market

It definitively has NOT bottomed out.  To review my post in late July in which I forecast another big drop in the real estate market, the thesis was that:  1) we would get a small bounce fueled by the housing tax credit (which it turns out is costing taxpayers a lot more than is being achieved by the home sales being stimulated);  2) a huge number of foreclosed and foreclosures-in-process would eventually hit the market, specifically in the middle/upper pricing segments, driving down prices in a major way - this is the segment that was largely financed with faux prime jumbos, nefarious and nuclear pay-option ARMs and other fraudulent mortgage products; 3) the record inventory of rental units sitting on the market would force rents lower; 4) 1, 2 and 3 would feed into the vicious downward spiral and cause housing prices to fall hard again.

Here's the latest on rents from
Apartment rents declined throughout the U.S. West and South in the third quarter as rising unemployment made it harder for landlords to raise their rates...Falling rents is great for renters, but it means falling apartment values, more losses for lenders and CMBS investors, more pressure on home prices. Here's the link:  Rents Are Tanking
The market this summer has been driven by the first-time buyer tax credit buyers and investors buying foreclosures.  Falling apartment rents will force housing landlords to drop their rents, thereby reducing the price that an "investor/speculator" will be willing to pay for investment properties.

As for the tax credit buyers, it is very likely that most first time buyers who were considering buying a home have already taken advantage of the tax incentive (similar to the cash for clunkers program, in which the majority of the sales occurred early on in the program).  This dynamic is where the superficial analysts and headline skimmers believe that the housing market has "bottomed."  So, even if Congress extends the taxpayer subsidization of home sales, it is likely that sales from the use of the tax credit will quickly decline.

Combine falling rents with slowing demand at the lower end of the market, and a massive flood of mid/upper tier homes coming to market, and the stage is set for the next leg down in the housing market.  Recent data which are "leading indicators" of declining activity in the real estate market include falling architectural billings (calculated risk tracks this metric), declining housing starts and a big drop in mortgage applications.

Anyone who buys a home right now thinking that they are either buying at the bottom of the market OR they can rent it out for a year or two then flip it at a profit is making a huge mistake.  Anectdotally, around the middle/upper tier neighborhoods in Denver, I'm seeing a lot more "for sale" AND "for rent" signs popping up, and the higher-end  homes already for sale have been sitting on the market for quite some time.

I can't say with any accuracy whatsoever when the housing market will reach a true bottom, but I will stick my neck out and forecast another eventual 30-40% downside in prices in the lower/middle tier segments and at least another 50% drop at the high end.  I also believe that a true bottom will be marked by the time when most remaining real estate brokers are out of the business, all of the homebuilder stocks are below $5/share or completely gone, and we stop seeing Wall Streeters and Barbara Corcoran go on national media shows proclaiming that housing prices are great value now.

Finally, if you want to a lot of the data behind my analysis, please follow this link:  Mark Hansen Blog

Tuesday, October 20, 2009

FDIC Nets 27 Cents On The Dollar From Liquidation OF New Frontier Bank

The Colorado bank was largely holding agricultural-based loans, however, at $500 million in assets, it was a small liquidation.  Imagine how much lower the overall salvage value would have been if this had been a few billion in loans?  One package of loans sold for 2 cents on the dollar.  Here's the link:  Bank Liquidation at 27 Cents

The point is that this is a market-based piece of data that can be used to measure the market value - real value, that is - of the so-called Level 3 assets that banks are now marking up on paper and creating paper income from. 

I have to imagine that agricultural-based assets possess some intrinsic value and income generation characteristics that are unique vs. empty housing and commercial real estate developments.  And this was a relatively small bundle of assets that were liquidated.  What happens to the prices when a bank with several billion in assets is liquidated?  I can assure everyone that less than 27 cents on the dollar will be achieved.

If we go through the exercise of applying actual price data from asset sales like New Frontier to the balance sheets of the too-big-to-fail banks, what will that do the capital ratios and book values of these mega-banks? Why aren't the regulators and policy-makers in the White House enforcing reality on these banks instead of letting the officers pay themselves millions in bonuses based on fantasy accounting?

Here's why Obama and the Democratic Leaders in Congress

have become Wall Street's obedient lap-dog:  LINK

Goldman Sachs CEO, Lloyd Blankfein to Obama:  "Here boy, be a good dog and SIT"

(link courtesy of Jesse's Cafe Americain - site-link listed below)

How High Can Gold Go?

There are lots of different methodologies you can use to derive a benchmark price to measure possible price targets for the yellow dog.   One such measuring stick is proved by John L. Williams' Shadow Statitistics, which tracks Government-reported economic statistics and exposes the ways in which the Government has fraudulently manipulated these metrics.

One such metric is the CPI calculation, which the Government began manipulating right after Nixon closed the gold window in 1971.  Arthur Burns, then Fed Chairman, devised rationals for using data which ultimately underestimated the Government-reported inflation statistic.  With each successive Presidential Administration and Fed Chairman, this manipulation of reported inflation became more blatant, absurd and unequivically disconnected from a real meaure of price deflation, and its tautological twin, dollar devaluation.

Williams recently showed that IF the Obama Administration were, in the spirit of restoring the honesty in Government that Obama promised during his election campaign, to go back to 1980 and use the same methodology to calculate inflation that was used when Paul Volker was the Fed Chairman, the inflation-adjusted "fair value" for gold would be $7,150:
“If the methodologies of measuring inflation in 1980 had been kept intact, gold would have to hit $7,150 to be the equivalent of the 1980 record,” Williams said
So there you have it.  I have come across several other "what if" calculations, and will perhaps present these in a future post.  But I'll close by saying that, from time to time over long periods of U.S. history, the Dow/Gold ratio occassionally hits a ratio of 1.  Right now that ratio is 9.5.   What this tells me is:  1) We have a LONG way to go before the gold bull reaches a top; 2) Gold is extraordinarily cheap vs. the stock market; and 3) The price of gold has a LONG way to go before it catches up with the 80% dollar devaluation that has occurred since 1971 (that statistic can be found on the Fed website).

Apparently no one in the Government sends their kids to college:  College Tuition To Rise Sharply Again This Fall

Monday, October 19, 2009

Banana Ben Bernanke Blows More Smoke, More Bubbles...

Question:  How do you know when Bernanke is lying?   A:  His lips are moving.

Bernanke gave a speech today in which he blames global imbalances on Asian exports and a low U.S. savings rate.  How about blaming the level of exports on a high rate of U.S borrowing-based consumption, fueled by Bernanke's monetary policies?  If Bernanke REALLY believes that the U.S. needs to increase its rate of savings to a much higher level, then he would, first and foremost, raise short term interest rates to a level which would encourage savings and discourage borrowing/consumption.  If Bernanke REALLY wanted to address the global imbalances, he would reduce the amount of U.S. dollar-based liquidity in the system by raising capital ratios in the banking system and he would stop printing money to monetize Treasury debt.   Not only would this address his "global imbalances" concern properly, it would create a stronger banking system and support the dollar.  Here's a summary of his comments:  LINK

On another note, dollar weakness and stock market ebullience - no, rather stock market irrational exuberance - is being attribute to a statement made by the Fed that it is testing its "reverse repo system," which will be used to drain liquidity from the system when the Fed good and ready LINK.  Here's the problem:   1)  It will be close to impossible for the Fed to remove most of the money it put into the system for many reasons, not the least of which is that it would require the Fed to unload trillions in toxic assets back onto bank balance sheets and the banks would have to send cash back to the Fed in exchange.  The banks don't have that kind of cash on hand;  2)  If the Fed removes even a very small "sliver" of printed money from the system, our entire eonomic system will collapse.   Before you believe anything Banana Ben has to say about this, please revisit the Q&A at the introduction of this post.

Finally, the money manager, Steve Einhorn,  who grabbed headlines a year ago with his massive bet on the collapse of Lehman, is now making news with his massive bet on the collapse of the dollar:  LINK. He's actually making this bet in two ways.  First, he has accumulated a big position in physical gold and mining stocks.  Please note that Einhorn is the guy who announced in July that he dumped his big position in GLD and bought physical gold that he safekeeps (I'd like to claim an assist in this decision of his, because I sent him my research piece on why GLD is a fraud, once in early March and once in early June - his announcement was made in July).  Second, he has placed cheap, long-dated options bets on a rise in interest rates in Japan (I'm sure he has other plays but this is the one he disclosed in public).   Interest rates in Japan vs. the U.S. have only one way to go, and that's dramatically higher, as the zero interest rate policy in Japan which fueled the yen-carry trade is unwound and the zero interest rate dynamic shifts into the new dollar-carry trade.   I expect Einhorn to do very well on this trade, although not as well myself and the fund I co-manage will do in junior mining stocks.

Friday, October 16, 2009

Goldman Sachs Tightens Its Grip On Our System

SEC Said to Hire Goldman’s Storch to Be Chief Operating Officer here's the link from Bloomberg News:  LINK  The headline should read:  "Goldman Sachs To Enforce Securities Laws:  The Mafia Don Gets To Guard The Bank"

Call me cynical, but does anyone really believe that this 29 yr. old would ever go after his own firm?  We see how much money Goldman will be paying its employees this year.  What does this kid get in exchange for taking a Government job?  How about the possibility that this kid shuts down operations at firms that compete with Goldman, for Goldman's benefit?  Please tell me this is some kind of joke.

Let's be honest here.  To what extent does ANYONE really believe that a 29 yr. old with very little securities industry experience, let alone general business world experience, will be able to wield the influence and power necessary to crack down on the fraud and corruption mushrooming out of control in our financial system?  Seriously?  This kid's greatest accomplishment to date was creating a Clinton supporter website at NYU.  Please wake me up from this bad dream...

I'm sorry, but I have to believe that with all the public criticism that the Obama Administration has received for basically being seen as a lapdog for Goldman Sachs, I have to believe that the SEC's Mary Shapiro could have found another source for hiring a COO.  

Seems like everyday I wake up to find more news that blows my mind and further convinces me that a few firms on Wall Street are running our Government. Something is VERY wrong in our system and I am convinced now more than ever that we really have no idea who this person is that was elected on a platform of "Hope and Change,"  because I have yet to see anything that Obama has done for the benefit of anyone except Goldman Sachs and JP Morgan (for the record, I originally suppported Obama but did not cast a vote for him).

What does Goldman have in store for its coup de grace...or is it a coup d'etat?

Thursday, October 15, 2009

Regarding Goldman Sachs Earnings "Strong":

Nothing more than JPM's bullshit redux...well, not completely redux. The revenues in business lines at Goldman that DON'T benefit from mark-to-fantasy accounting were weaker , both year over year and 2nd qtr to 3rd qtr:

Looking at Q2 to Q3: Investment Banking -38%, Asset Management -6%, Trading and Principal Investments -7%.   So where did they make this record profit you ask?  Their FICC, or Fixed Income, Currency and Commodities unit generated all the profits, paper profits that is

Let's break it down from their press release:   Net revenues in FICC were $5.99 billion, significantly higher than the third quarter of 2008. These results reflected strong performances in credit products and mortgages, which were significantly higher compared with a difficult third quarter of 2008.  Credit products and mortgages are GAAP-speak for "securities we hold, we can't sell, but we can mark them up to whatever profit number we want to report to make big bonuses."  Notice the comparision to Q3 '08, which was when all these positions were marked down drastically.  Now they are marking them back up and reporting the paper gains.

There's more:  "Net revenues in Equities were $2.78 billion, 78% higher than the third quarter of 2008. These results reflected strong net revenues in derivatives, which were significantly higher than the third quarter of 2008."  Same deal here.  Marking up illiquid derivatives positions on a mark-to-fantasy basis, reporting the paper gains as fabulous net income, and paying them selves fabulous cash bonuses using cash that was funnelled thru to Goldman from the Treasury and the Fed via AIG.  It's that simple.

Both JP Morgan and Goldman Sachs have generated massive paper profits which will translate into cash bonuses for the employees.  This is grand theft in front of the world, with the cheerleaders on CNBC and Bloomberg happily waving their pom-poms, while the rest of the country suffers the consequences of policies implemented by Bernanke and Obama which are hijacking the nation's wealth and giving it to Wall Street.

What you might have missed in all of the hoopla in the media is that housing foreclosures hit a new record high in the third quarter, the Philly Fed Index plunged 21% from the September reading (the unemployment component fell from 14.3 to -6.8) and credit card charge-offs at Capital One, the poster-child of subprime credit card lending, soared in September.

Did JPM and GS really earn all the money, or was simply shifted from taxpayers to the bankers?  Barack, what do you have to say about this, without a teleprompter or help from Rahm Emanuel?

Wednesday, October 14, 2009

Quickly, Just For The Record On JP Morgan's "Huge" Earnings:

They are COMPLETE bullshit.

Just went thru their press release. Would need to see a 10Q to get more back-up information, but it looks like most of JPM's GAAP net income was generated from:

1) mark to fantasy of their fixed income and derivatives book

2) marking up as much as possible all of the Washington Mutual assets they had marked down to nothing and acquired with U.S. Taxpayer guarantees when they hijacked Wash Mutual's good assets. Looks like JPM is marking those assets back up to fantasy and releasing GAAP (i.e. paper gains) into their earnings account

3) mark to fantasy of their private equity portforlio

Anyone who wants to believe that JPM's huge earnings gains are legitimate also probably believes in Santa Claus.

An Update On Aquiline/ECU: Aquiline Hits Paydirt, Is ECU Next?

On Sept. 29, I posted analysis that explained why I was confident that Aquiline Resources and ECU Silver are fundamentally "twin" companies and why both stocks are rediculously cheap to fundamental value.

Well, Aquiline just agreed to be acquired by Pan American Silver (PAAS), in a stock and warrant deal that effectively values Aquiline at $626 million (based on the current price of PAAS stock), or roughly 83 cents per ounce of silver Aquiline has indicated on its latest 43-101 resource filing. We will be taking some profits on our Aquiline position and plowing them into even more ECU stock.

Using this deal as a guideline to assess the relative value of ECU, applying 83 cents to ECU's measured, indicated and inferred resouce of 431 million, ECU stock would have a value of $1.25 vs. it's current trading level of $.77. HOWEVER, Micon International, the independent mining engineering firm which prepares ECU's highly regulated 43-101 Resource Estimate Report, has identified additional mineral potential that has been quantified at an additional 570 to 930 million silver equivalent ounces.

If we apply the 83 cents/per ounce in the ground to just the low end of Micon's assessment, that would give ECU 1 billion ounces, and an implied valuation of $830 million, or $2.91/share.

One more point to bear in mind. At one point in May 2006, the market was valuing silver in the ground, on average, at $2/ounce. If we apply THAT metric to ECU, the Company would be worth anywhere from from $860 billion to $2 billion, or $3-$7/share. Please note that back then the spot price of silver was around $13/ounce and had hit a brief peak of $15.35. Right now silver is $17.85/ounce on its way to at least $20. At some point, the market will value in-ground silver much higher than $2/oz. In other words, any way you want to value ECU's reserves, the stock is incredibly cheap.

I can say with complete confidence, and with money backing my statement, that I have rarely, if ever, seen an investment opportunity in the stock market with the low risk/high return potential of ECU. I say this because ECU, as per its latest press release, is now generating monthly cash flow from its milling operations that is much higher than anyone expected (except maybe CEO Michel Roy), it has demonstrated that the mineralization of its ore has a higher amount of gold than previously thought, and it has the certified potential to have at least a 1 billion ounce deposit. I might add that a huge benefit, though not well understood by most investors, from the Company's endeavor to generate revenues from processing its stockpiled ore is that it has demonstrated that is has a solid understanding of the metallurgy of its massive silver deposit. That issue is the golden (or silver) key to unlocking the value in a discovered mineral deposit.

Oh, and let's not forget about the Massive Sulphide Zone, which still needs to be explored. In conversations with people who have visited the mine-site, it is believed that this Zone could contain several hundred million additional ounces of silver. It is thought that this Zone is the ultimate source of ECU's already proved silver deposit. That potential is not factored into the above valuation analysis.

Please do your own due diligence. I have found COO Steve Altmann to be very responsive and user-friendly to any and all investor inquiry.

Tim Geithner's Treasury Dept Is A Veritable Viper's Nest Of Wall Street Thieves

Bloomberg News has posted a report which outlines just how corrupted by Wall Street that Obama's Treasury Department has become, populated with people on the taxpayer payroll serving as Geithner's closest "counselors," none of whom were subjected to the scrutiny of Senate confirmation:

"Some of Treasury Secretary Timothy Geithner’s closest aides, none of whom faced Senate confirmation, earned millions of dollars a year working for Goldman Sachs Group Inc., Citigroup Inc. and other Wall Street firms, according to financial disclosure forms.  The advisers include Gene Sperling, who last year took in $887,727 from Goldman Sachs and $158,000 for speeches mostly to financial companies, including the firm run by accused Ponzi scheme mastermind R. Allen Stanford."

One close aide to Geither, earned $3 million at a hedge fund last year and is due a big bonus this year, withdrew earlier this year from consideration to be the Treasury’s top domestic finance official because the job would have required Senate confirmation.  He remains a close aide/counselor to Geithner.

If you read through the entire news release, you'll see that almost every one of Geithner's close advisors and staff "counselors" come from the very firms that have been beneificiaries of the trillion dollar Treasury programs initiated by Henry Paulson which are enabling the big Wall Street banks to hijack Taxpayer wealth. Here's the link:  A Treasury Den of Thieves

Does anyone really think these people are working on behalf of the Taxpayer?   Is this the Change that people expected Obama to bring to DC?  Quite frankly it would appear that entire areas of Obama's Administration is being RUN by Wall Street.  The people Geithner has hired to run Treasury are the eqivalent of a daycare business hiring pedophiles to oversee day to day operations.

Et tu, Barack?

Tuesday, October 13, 2009

American Barrick Issues $1.25 Billion In Debt To Further Reduce Gold Hedge

With the ink barely dry on its $4 billion stock deal, American Barrick (ABX) announced a surprise debt deal to raise another $1.25 billion in order to further reduce its gold hedge book.  The stock deal was used to extinguish Barrick's $3 billion fixed-price hedges plus some of its floating-price hedge exposure, incurring 10% shareholder equity dilution and a $5.6 billion charge to earnings. 

The bond deal announced tonight, curiously several hours after the stock market had closed for the day, will be used to eliminate part of the $2.7 billion in floating-rate hedges that remained after last month's mammoth stock deal. 

The nature of this latest financing tells me two things.  First, there is inexorable demand from big institutional investors for large, liquid precious metals mining company financing deals.  It's one thing for the world's largest gold mining company to issue a $4 billion stock deal, but it's an entirely different matter for the same company to issue a large unsecured bond deal, with 1/3 of the deal maturing in 10 years and 2/3 of the deal maturing in 30 years.  That tells me that big investors are now comfortable with the idea that the gold bull market will have longevity.

The second, the fact that Barrick is doing this large debt deal so soon after the stock deal in order to cut its remaining floating-rate hedge exposure in half sends a signal to the market that Barrick's management is concerned about the Company's large negative exposure to a big upside move in the price of gold.  When you think about it, if Barrick managment thought that the price of gold were just as likely to go down as it would be to go up, it would be in the Company's best interest to wait a bit and try and buy back its hedge at lower prices.  Raising more money like this, however, tells us that Barrick management sees the probability of an imminent and big move in the price of gold as being significantly skewed to the upside.

I hate to burst the egos of gold market analytic geniuses like Jon Nadler, Jeffrey Christian and Robert Prechter (note: sarcasm intended) - all three of whom believe the gold market has topped and likely to crash - but as a betting man I like the odds of placing my chips on the view of the people running the world's largest gold mining company rather than three stooges who provide useless investment advice and don't invest a nickel of their own money in the markets.

Please note, my endorsement of the outlook on gold's upside prospects by Barrick's management in no way reflects any interest on my part to invest in Barrick's stock.  I still believe Barrick is a mediocre investment for many reasons.  HOWEVER, we know from previous statements from management that Barrick is actively looking for acquisitions and has a subsidiary operation set up to monitor and evaluate junior mining companies.  I am confident that there is a lot of money to be made building a portfolio of junior mining stocks ahead of the inevitable rush of huge money flows into the exploration segment of the mining stock sector.

Ultimately, based on actions being taken by Barrick, we can be highly confident that 1) the price of gold is going a lot higher;  2)  there is substantial, and substantially growing, institutional investor demand for mining company assets; and 3)  there is still a lot of money to be made from investing in the precious metals and mining stock sector.

Monday, October 12, 2009

Demand For Physical Possession Of Gold Is Driving The Price Of Gold

Long-time gold market analyst James Turk was recently on CNBC Europe discussing how and why the scramble by investors and Central Banks for taking possession of physical gold (vs. owning derivative forms of gold like ETFs and leveraged gold investment accounts offered by the likes of Kitco and Monex) is now driving the price higher. 

A perfect example of this, Turk points out, is that the demand for ETFs like GLD has gone sideways for several months (measured by GLD's reported inventory of bars) while the price of gold has gone from under $900 to new all-time of $1050.  He also mentions the tightness in the physical market.  In that regard, I have mentioned that, although the tightness is not apparent at this point in time in the bullion coin market, we have several accountings of delivery problems, including my own,  reported by investors on the Comex and the LBMA (London Bullion Market Association), the two largest gold and silver bullion bar markets.

Turk also explains why gold preserves the purchasing power of your wealth against the devaluation of the U.S. dollar and he discusses why an investor can avoid counterparty risk when they own gold outright [without using debt].  I would add that even keeping your cash in a bank exposes you to the counterparty risks of your bank being closed down AND the possible defaulting of the FDIC.  The possibility of the latter would have been completely dismissed even a year ago.  Anyone who thinks now that it's not a possibility is whisling in the dark.

This video of Turk on CNBC  Europe is a little over four minutes and worth every second of watching it:

James Turk On Gold

Central Banks Are Dumping Dollars

This should send fear into the hearts and minds of anyone who does not own physical gold and silver - and I don't mean GLD, which is nothing but a pure derivative of gold:
“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”  (source:  Bloomberg).
Central Banks, in April, May and June, the latest quarter for which data is available, put only 37% of their new reserve funds into U.S. dolllars, an amount that has plunged from the 63% average level since 1999 (source: Bloomberg - here's the LINK).

When you look at this statistic, and combine it with several recent public statements from China beating the drums for a new global reserve currency - plus the report that several large countries including Gulf Arab States are looking at dumping the dollar in oil trading - it is becoming increasingly apparent that the U.S. dollar is losing its status as the world's reserve currency. 

Anyone who still has HOPE that the Obama Administration is implementing policies which support a strong dollar (i.e. reducing spending deficits, reducing Treasury debt levels, promoting real economic growth vs. just subsidizing more debt-fueled consumer spending), will be in for a very rude awakening when they wake up one day to discover that the dollars in their bank account are close to worthless.  Actually, it will be more akin to being blind-sided in the head by a swinging two-by-four piece of wood.

The ONLY way to protect yourself from the rapidly growing fraud, corruption and massive wealth theft by the large Wall Street banks, and enabled by the Obama Administration - Bush was guilty too, but everything happening now is on Obama - is to move as much of your wealth as possible in to gold, silver and mining stocks.  You only have yourself to blame if you don't.

Sunday, October 11, 2009

Barney Frank Is GREAT For Gold!

Simply stunning, too-insane-to-be-believed, statements from Barney Frank concerning the Government's hopelessly futile attempt to stop the housing market collapse - i.e. override the LAWS of economics (sourced from

“I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.”  Barney Frank, chairman of the House Financial Services Committee on recent FHA lending, quoted Oct 9th, 2009 in the NY Times..."I believe the intent of the FTHB [first time home buyer] credit (and any extensions) is to raise the floor on home prices to delay (and sometimes prevent) defaults, reducing the shock to the financial system."

Essentially, Barney Frank is saying that it's okay to make money-losing loans using taxpayer money in order to sustain the housing bubble.  I'm not sure how Barney Frank manages to keep his Congressional seat.  Do people in Massachusetts believe that its okay to toss bales of money into the water off of Chappaquiddick Island instead of bodies?  I don't know if I should send Barney a thank-you note for supporting policies that make gold go a lot higher, or shudder with fear from the knowledge that complete idiots are running our Government.

Friday, October 9, 2009

Still Waiting For Gold to Crash? Better Read Below...

Dow Theory Letters publisher Richard Russell has issued an uncharacteristically bullish statement on gold.  Russell, who is perhaps that most famous and enduring market newsletter publisher, called the bottom of the 1972-1974 bear market.  Russell uses some proprietary indicators to forecast market trends. He's probably been, over the last 50 years, the most consistently accurate market forecaster.  Here's what he says about gold:
“Meanwhile, a great bull market starts, it's a bull market that mirrors the demise of the dollar. Gold is priced in dollars, and as the dollar weakens, it takes an increasing amount of fiat dollars to buy an ounce of gold…Beginning in 1999 gold started up in a primary bull market. In my personal opinion, this is fated to be one of the greatest bull markets in history. It will be a bull market built on not one, but two powerful human emotions -- both greed and fear. The speculative third phase lies ahead. Slowly but surely, the US public will finally realize that the US government is bankrupt both morally and monetarily. People will panic into goldI believe that there will be a world panic to buy gold. This will set off one of the wildest and most explosive bull markets in history.”

There are a several fundamental variables to support Russell's comment.  Let me just say that all these bubblevision "experts," who get on t.v., or pen commentary in the Wall St. Journal, and cite declining jewelry demand or industrial demand as reasons why the price of gold is at a top and going lower, have absolutely no clue what they are talking about - in fact, they look like absolute idiots to those who do (see the recent article by Dave Kansas of the Wall Street Journal. I am in shock the WSJ published such sloppy, incompetent reporting).

I will address all the reasons why gold is going much higher in future blog posts.  But I would like to say that, based on evaluating a lot of evidence that has been brought to my attention from some people who are in a position to know the facts - plus my own recent experiences in dealing with gold and silver deliveries from the Comex - there is a rapidly growing problem with the ability of three or four big banks, who are short Comex and LMBA gold futures contracts in large quantities, to make good on the actual delivery of physical gold.  I am now hearing accounts of some large investors being offered cash settlement of their futures contracts at spot plus substantial premiums over spot.  In other words, there is a condition of "backwardation" in the gold market that is not evident to the casual participant.  This alone, if I am correct, will drive the price of gold substantially higher (and of course, silver will go up even more in percentage terms).

Wednesday, October 7, 2009

More on Deficits, Dollars and Gold...

This is a small excerpt from the latest monthly newsletter pubished by Jim Dines.  Over the past 30 years, Dines has probably been the most accurate macro-trends forecaster on earth (

"Thus it was when the American Congress projected a cumulative 2010-2019 deficit of $9 trillion instead of the $7 trillion previously estimated, we were shocked that nobody protested or even gasped as the number was even greater than one light year! Personally, we believe that the deficit will be closer to two light years, and those who trust that this will end well are not on the same planet. Maybe we are the aliens, but we can hardly understand how Congress could vote for so much deficit spending with a straight face. Whether they just don’t give a damn, or hope to be safely dead by the time it hits the fan is beyond us to comprehend. Fair-minded people could object to that kind of spending no matter who the president is, but such spending deficits per se arouse in us a deep sense of foreboding. Worse, America’s deficit continues to widen, due to rising imports of autos, oil and computers, even while home foreclosures reach a new high. Jobless numbers are down, but Washington fraudulently excludes those who are so discouraged that they have abandoned looking for a job. How does America nonetheless thrive? By the sleight-of-hand trick of just printing money, America’s leading export, going gleefully ever deeper into debt and hastening the day of "The Coming Currency Crisis" for which we have prepared you with the long-term stocks in Supervised List #3, facilitated by a recently reappointed "Helicopter Ben" Bernanke who seems as blissed-out by out-of-control spending as a teenager with his/her first credit card. Unsurprisingly, gold bullion reached a new high at $1020.50/oz in London. One of the points in our recent (IWB) Interim Warning Bulletin, was the tremendous rally in gold bullion, having completely recouped its loss from the ’08 Crash, should now be outperformed by gold-mining shares as they catch up. America’s soaring debts could hardly be more bullish for gold, since the yellow metal is money that represents differing amounts of paper money in various countries."

I want to follow-up that prescient Dines' commentary with an anectdotal story about the U.S. dollar and it's worth as a currency.  This was a reader contribution to tonight's Midas report, available on

"On another note regarding the all mighty US dollar, I thought you might enjoy the following: My wife returned last week from a business trip to Madrid. On the way back she decided to stop at the duty-free store at the airport to pick-up a couple of bottles of one of Spain's great red wines. When my wife went to pay for the order with good ole American variety greenbacks, the cashier responded that she was sorry but that the store does not accept dollars for purchases but she could pay with either Euros, Swiss Francs, Yen or Yuan ! I guess the dollar really isn't the world's reserve currency afterall!"

Think about the implications of that story.  What is the true worth of the U.S. dollar if you are unable to use it to pay for goods and services outside of the United States?   I have heard several accountings of people who have been travelling through Europe over the past year in which local merchants in several countries refused payment for goods in U.S. dollars.  This problem for dollar-toting American tourists is going to become ubiquitous around the world.  What then?  I guess it is irrelevant as to whether or not the U.S. dollar is the global reserve currency when that dollar has absolutely no value anywhere except inside the U.S.

As for short-term and longer-term price targets for gold, right now it's anyone's guess.  To put a price target in terms of dollars is probably irrelevant, because - by the time the bull market in gold ends - I doubt the U.S. dollar as we know it now will exist.  If that's the case, the best exercise is to figure out your price targets in terms of euros, rupees or yuan.  But for now, I think the following chart is a good starting point for dollar-based guesstimates.  This was sourced, again, from tonight's Midas report:

"Relentlessly the dollar is being abandoned worldwide. Unfortunately, the other G-20 currencies are not much better and that is why gold is so important. Keeping liquidity running into the system hasn’t worked and can’t work"  - Robert Chapman, International Forecaster

Tuesday, October 6, 2009

Guess Who Said This:

“U.S. Dollars have value only to the extent that they are strictly limited in supply. But the U.S. Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. Dollars as it wishes at essentially no cost.” (1)

Think about what that statement means for a minute, specifically as it applies to a currency system in which a single currency is the currency which is mandated to serve as the global reserve currency - i.e. the 1944 Bretton Woods Agreements - for all global trading activities.  And then think about what that statement above means when the country which happens to issue the global reserve currency - originally meant to be "anchored," i.e. supply-constrained by gold - decides to disconnect the anchor to gold and freely create as much supply of that currency as it wishes. 

We have actually witnessed what happens in that case, as the value of the U.S. dollar, after 38 years of basically unfettered supply creation, has lost 80% of its value since 1971, when Nixon closed the gold window (meaning that Nixon thus decreed that U.S. dollars would no longer be exchangeable into gold by foreign central banks wishing to do so).

Getting back to the quote above, Ben Bernanke made that statement in the infamous speech in which he proudly announced that he could prevent deflation by dropping unlimited amounts of dollars from helicopters if he had to (he actually bastardized what was mostly likely a sarcastic comment by Milton Friedman).  Ben was thus perjoratively labelled, "Helicopter Ben." (Think about how disgraceful it  is for a tenured professor from Princeton to be known by well-educated people as either "Helicopter Ben" or "Banana Ben").

The problem is that Helicopter Ben could ultimately print dollars to the point were the value of each marginal dollar is equal to the marginal cost of printing that dollar. In the case of our modern printing press technology, in which the marginal cost of printing dollars is close to zero,  theoretically the supply of dollars can be close to infinite, conversely inflation can theoretically approach infinity - and, tautologically, the value of the dollar can approach zero.

When you have the ability to print up the pieces of paper which are legally mandated to be used in exchange for goods of intrinsic value - oil for instance - the issuer of the pieces of paper can theoretically render that oil worthless.  That being the case, rest assured that the producers of goods with intrinsic value - oil for instance - will eventually deny the ability to trade those printed pieces of paper in exchange for oil.  In fact, I would bet that ultimately those producers of oil will eventually require any exchange for oil to involve either gold, or a piece of paper unequivocally backed by gold, which means the holder of that paper can turnaround and exchange the paper for gold from the issuing coutry's Central Bank.

Apparently there has been much ado about nothing over comments made by a well-followed blogger in which said blogger claims, using remarkably vacuous examples, that having reserve status of one's currency is irrelevant.  I'm not sure why anyone has given that commentary anything more than a good laugh.

(1)  Ben Bernanke, Remarks to the National Economists Club,  Washington, DC, 11/21/2002

Monday, October 5, 2009

The Beginning Of The End For The U.S. Dollar

The Independent, a British newspaper, is reporting that discussions are being held among Gulf Arab Countries, China, Russia, India, Brazil, Japan and France to end the use of U.S dollars in global oil trade. The 1944 Bretton Woods Treaty established the U.S. dollar as the world's reserve currency.  A primary reason the Treaty was accepted was that, at the time, the U.S. dollar was backed by the Country's gold reserves. When BW became operational in 1945, all global trade  - most important, all oil trading - was transacted using U.S. dollars.  Now, there is a global movement to replace the U.S. dollar as the currency used to settle oil trading: 
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars. The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.  (Article Link)
This development should not come as a surprise to anyone paying attention to public statements being issued by China and other economically powerful countries.  Ever since Nixon dislocated the dollar from its gold-backing in 1971, the U.S. Government and the Federal Reserve have embarked on 38 years of extraordinarily reckless - ultimately catastrophic - fiscal and monetary policies.  Policies which allowed the middle class to feign prosperity, while the business and political elite have engaged in years of escalating fraud and corruption, culminating in the consolidation of wealth and power into the hands of very few people and have completely sabatoged our Constitution and system of democracy.  Policies which furthermore have inflicted a continual and insidious devaluation of the U.S. dollar currency reverves being held by every other country in the world, especially the massive dollar reserves held by China and Japan.

It was the recycling of these petro/export-based dollars back into the U.S. via Treasury bond purchases by the OPEC countries, Japan and China that allowed the U.S. to run its now trillion-dollar spending deficits and 12 trillion dollar Treasury debt outstanding.  It should have been clear to everyone long before we reached this tipping point that this behavior by the U.S. was unsustainable.  And now it looks like the rest of the world is going to force the issue by pulling the rug out from under the U.S. dollar, thereby ultimately ending the U.S. system as we've known it since the end of World War Two.

This could well be the event which precipitates the escalation of "quantitative easing," aka monetary printing press policy, by the Fed.  In the 2nd quarter of 2009,  Bernanke's Federal Reserve purchased 50% of all the Treasury bonds issued by the Government.  If our trading partners no longer need to recycle their dollar reverves back into our financial system, we could well see the monetary hyperinflation that a small but growing number of financial commentators have warned is inevitable, as the Fed would be forced to print even more money in order to finance U.S. spending deficits.

The bottom line is that, while Americans are being well-fed by Bernanke and Obama with the illusion that the recession is over and economic prosperity is right around the corner, the rest of the world is preparing funeral arrangements for the U.S. financial system.   Anyone who wants to preserve some modicum of their remaining wealth would be advised to shift as much money as possible into gold, silver and mining stocks.  Do not be the last one out of the dollar.

This Sums Up Where We Are Now in the U.S...

"When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see money flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed" … Ayn Rand

Why Gold?

For roughly 90% of the 5000 years of recorded history, gold has functioned as civilization's primary transactional currency.  One of mankind's perpetual questions is, "why gold?"  Jim Grant, of "Grant's Interest Rate Observer" dug up this quote from one of the foremost authorities on the pricing and role of gold over several centuries in national and world economies (kudos to for posting excerpts from Grant's newsletter today):

"Gold has two interesting properties. It is cherished and it is indestructible. It is never cast away and it never diminishes, except by outright loss. It can be melted down, but it never changes its chemistry or weight in the process. Its price has been remarkably similar for centuries at a time. Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century" (source:  Jim Grant via

I'm guessing that it's a given that the fine people at Zerohedge have nary a clue as to who Roy Jastram was. Jastram was an economics professor, among other things, at UC Berkely from 1946-1983.  Jastram's signature work on the subject is a book entitled "The Golden Constant," which earned him many accolades of distinction, including election to the venerably aristocratic Athenaeum Club in London.  I have not read this book yet but it is near the top of my reading list.

Just as a point of reference, Jastram's empirical work on the value of gold through the centuries goes all the way back to 1343 A.D.  For an excellent numerical example of how gold maintains its value against the dollar, see my post here from September 30:  LINK

Saturday, October 3, 2009

What Does AIG Have to Hide? reports that: 
AIG's computer network blocks employees from accesssing the governement's site, according to a person at AIG. The site explains and tracks TARP and other financial bailout programs.  According to AIG's network, FinancialStability.Gov is a "malicious website" (here's the AIG blocks access to the truth )
And here's the link to the website AIG is blocking from employees:

I suppose that this isn't really a big deal, since any employee at AIG can go have some fun with this website when they go home at night.  Given that this is the case, we have to wonder why the upper management at AIG would do something like this, especially when the only end that it accomplishes is to have this action brought to the public's attention. wouldn't have even known about this website if it didn't make the news like this.

The REAL issue here is WHY would AIG's big brass, all of whom have participated in paying themselves millions in bonuses funded by the Taxpayers, want to prevent people from looking into what kind of information is available on this Government website?  Perhaps the only "malicious" content on this website is the information that tracks down just how much money went into the pockets of the people running AIG and the Big Banks who were bailed out as a result of AIG's failure.  I suspect eventually that this website might mysteriously disappear?

Friday, October 2, 2009

From The "Just Unbelievable" Department:

Obama Administration Approves $10.5 Million Pay Package For AIG Chief - here's the link: What A Tragic Waste

Is Obama a Robin Hood in reverse?  A Robbing Hood, perhaps?  I guess you could call this Obama's "Trickle Up" Theory - socialism for the wealthy.

Let's think about this for a moment.  AIG should have been allowed collapse from the beginning.  But it is being used as a thinly veiled conduit to transfer billions from the the Taxpayer to the big Wall Street banks - first and foremost Goldman Sachs - in order to cover Wall Street's derivatives exposure to AIG.  And it owes the Government (i.e. the Taxpayer) $120 Billion that will NEVER be repaid: Link to AIG invoice

To me it's absolutely insulting to my intelligence that Obama and his gang keep this charade going, dressing up this corpse with a CEO, who is being paid millions in taxpayer dollars, and waving it around in front of us in an attempt to convey the illusion that AIG is alive.  Why not just bury AIG and give Obama's Wall Street supporters the same kind of guarantees that stand behind Fannie Mae and Freddie Mac, and soon the FDIC and the FHA?  At least we, the Taxpayers, would save the expense of operating AIG. 

When will this fraud and corruption end?
Will the wind ever remember
The names it has blown in the past
With its crutch, its old age, and its wisdom
It whispers, "No this will be the last"
And the wind cries Mary (James Marshall "Jimi" Hendrix)